More and more Internet users are realizing the ease and convenience of buying and selling online by way of person-to-person online trading pioneered by eBay® Inc., San Jose, Calif., the assignee of the present invention. As a result, collectors, hobbyists, small dealers, unique item seekers, bargain hunters, and other consumers are able to buy and sell millions of items at various online trading sites.
Unlike many types of commerce, the Internet has no physical boundaries. This lets anyone around the world trade with others, regardless of the country in which the traders reside (absent restrictions on certain types of trade of for certain countries). While this is advantageous to many, it creates a tax-collection nightmare for many governments.
In particular, taxing authorities (i.e., government entities) in the European Union (EU) rely heavily on a form of tax known as a value-added tax. The VAT is applied to nearly every product purchased by residents of EU countries. In contrast, the VAT is (effectively) not levied on non-EU residence; generally, VAT will be paid by a non-EU resident on an item at the point of purchase, and then refunded when appropriate paperwork is submitted to the taxing authority imposing the VAT.
In addition to products, VAT is also charged on services provided by EU businesses. At the same time, online marketplace sites, such as those hosted by eBay®, derive revenues by offering marketing services to its users. As a result, as of Jul. 1, 2003, the EU has imposed a tax directive requiring online marketplace hosts to collect a VAT for services provided to non-exempt users who reside in EU countries and distribute the collected VAT to the appropriate taxing authorities.